TABANI’S SCHOOL OF ACCOUNTANCY

CMA
Alpha manufacturing company produces a simple product which is known as sigma. The product
requires a single operation, and the standard cost for this operation is presented in the following
standard cost card.

Standard cost card for product sigma

Rs.
Direct Material:
2 kg of A at Rs.10 per kg 20.00
1 kg of B at Rs.15 per kg 15.00
Direct labour (3 hours at Rs.9 per hour) 27.00
Variable overhead (3 hours at Rs.2 per direct labour hours) 6.00
Total standard variable cost 68.00
Standard contribution margin 20.00
Standard selling price 88.00

Alpha Ltd plan to produce 10,000 units of sigma in the month of April, and budgeted costs based
on the information contained in the standard cost card are as follows:

Budgeted based on the above standard costs and on output of 10,000 units.
Rs. Rs. Rs.
Sales (10,000 ones of sigma at Rs.88 per unit) 880,000
Direct materials:
A: 20,000 kg at Rs.10 per kg 200,000
B: 10,000 kg at Rs.15 per kg 150,000 350,000
Direct labour (30,000 hours at Rs.9 per hour) 270,000
Variable overheads (30,000 hours at Rs.2 per direct labour hour) 60,000 (680,000)
Budgeted contribution 200,000
Fixed overheads (120,000)
Budgeted profit 80,000

Annual budgeted fixed overheads are Rs.1,440,000 and are assumed to be incurred evenly
throughout the year. The company uses a variable costing system for internal profit measurement
purposes.

The actual results for April are:

Rs. Rs.
Sales (9000 units at Rs.90) 810,000
Direct materials:
A: 19,000 kg as Rs.11 per kg 209,000
B: 10,100 kg at Rs.14 per kg 141,400
Direct labour (28,500 hours at Rs.9.60 per hour) 273,600
Variable overheads 52,000 676,000
Contribution 134,000
Fixed overheads 116,000
Profit 18,000

Manufacturing overheads are charged to production on the basis of direct labour hours. Actual
production and sales for the period were 9000 units.

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